Reinventing Foreign Aid

August 28, 2008

Sixty years after it started, foreign aid has become a debating matter once again. As sharply as ever before, opinion is deeply divided about whether or not aid works. For the optimists, aid is viewed as the necessary means for transforming the world's poorest and most backward economies, ultimately making global poverty history. For the sceptics, however, the record of aid over the past six decades of its existence has been disappointing.

One of the greatest problems with knowing which side of the intellectual divide is right is the absence of any comprehensive evidence about whether aid works or not.

As is well known, this is because of the familiar counterfactual problem - knowing what would have happened in particular countries if aid had not been given. As this book claims, however, the absence of such evidence should make us cautious in making over-grandiose claims for aid or building over-optimistic expectations about what it can achieve. The book is edited by the renowned aid scholar and author Bill Easterly, with a foreword by Nancy Birdsall, president of the Centre for Global Development in Washington, and chapters written by a wide range of mostly American scholars and practitioners.

In the opening chapter, Easterly distinguishes between two intellectual schools in the aid debate - the "planners" and the "searchers". The planners are defined as those who place great confidence in the ability of aid to transform countries and who set bold, predetermined goals for channelling large financial resources into these countries within the framework of a big plan, and accompanied by a large administrative apparatus. The searchers, on the other hand, are defined as those who adopt a more cautious, piecemeal approach, trying to find particular solutions to specific problems by means of trial and error and the feedback of information.

The early chapters of the book contain an appeal for more evidence-based policymaking in the development field. More specifically, the case is presented for making more use of randomised controlled trials to identify aid interventions that work and are cost-effective.

The authors see this as an attempt to mimic the trials that are carried out on new drugs before they are put on the market for sale to the public. In short, before vast sums of money are committed to a particular aid programme, we need to gather evidence about what works - a seemingly obvious requirement but one that is mostly ignored in aid-giving.

As a later chapter argues, however, one of the problems with a rigorous approach to evaluating different forms of aid giving is that aid donors may have a vested interest in concealing the results of such an exercise. Indeed, a log-rolling process may even develop where different aid-givers enter into an informal agreement not to subject each other's programme to rigorous evaluation. This may explain why such evaluations are rare.

Another important issue in the current debate about aid effectiveness concerns the relationship between the aid donor and the recipient state. Where good governance is absent in the recipient country, aid givers may be tempted to bypass the government of the recipient state and funnel aid directly to the targeted population. While this may result in aid more effectively reaching the people it is designed to help, it may undermine the sovereignty of the host government and hold back the development of the state.

This is all linked with the role played by aid-giving in the process of state-building in poor countries. Far from aid bringing about improved governance, aid may merely serve to reinforce patrimony, patronage and rent-seeking. A culture of aid dependency is created and sustained by the relationship that grows up between aid donors and government officials in the local state. Governments in recipient states become dependent on aid for revenues, leading to reduced accountability of the governing elite and underperformance in policy.

The purpose of this book is not simply to criticise aid-giving over the past 60 years. Rather, it aims to make it more effective. This means avoiding comprehensive blueprints, which reduce the solution to the problem of poverty to single-shock therapy. It means trying different measures to see if they work, but not assuming that the same approach will work equally well in all countries. As Easterly claims, this is the language of what the great philosopher Karl Popper called "piecemeal democratic reform" in contrast with "utopian social engineering".

There is a lot in this book for all those involved with development issues to absorb and think about.

Reinventing Foreign Aid

Edited by William Easterly. The MIT Press. 537pp, £48.95 and £22.95. ISBN 9780262050906 and 550666. Published 25 July 2008

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